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Does the quality of political institutions matter for the effectiveness of environmental taxes? An empirical analysis on CO2 emissions

Donatella Baiardi () and Simona Scabrosetti ()
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Donatella Baiardi: Dipartimento di Scienze Economiche ed Aziendali, University of Parma, Italy; Rimini Centre for Economic Analysis
Simona Scabrosetti: Dipartimento di Giurisprudenza, University of Pavia, Italy; Carlo F. Dondena Centre for Research on Social Dynamics and Public Policies, Università Bocconi, Italy

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We empirically investigate the existence of the Environmental Kuznets Curve (EKC) focusing on a sample of 39 countries in the period 1996-2014. Using an interaction model, we also analyze whether the effectiveness of environmental taxes in reducing CO2 emissions depends on the quality of political institutions. Our results show that the inverted U-shaped relationship between environmental stress and economic development holds independently of the quality of political institutions and environment related taxes. Moreover, an increase in the environmental tax revenue has the expected reducing effect on environmental degradation only in countries with more consolidated democratic institutions, higher civil society participation and less corrupt governments. Our findings also show that the effects on environmental stress of revenue neutral shifts to different tax sources depend not only on the quality of political institutions, but also on the kind of externality the policymaker aims at correcting.

Keywords: Environmental tax revenue; Environmental tax mix; Environmental Kuznets Curve; CO2 emissions (search for similar items in EconPapers)
JEL-codes: H23 P16 Q50 Q53 Q38 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-pol
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